Woodford Concerns

itwasntme001

Sailtheworld wrote: »

If someone is 75% equities & 25% UK Gilts then they could benchmark against VWRL for the equity part and VGOV for the gilt part. Simple rough and ready check to see how performance stacks up.

Obviously if there is a list of objectives then these should be interrogated in more detail to ensure they're being met.

Of course, that is why i said its usually meaningless to compare just with a world equity index.

Linton

Sailtheworld wrote: »

Without being privy to the consultation between IFA and client how can you be so sure?

That wasn't really the point I was trying to make. Even someone who is 'hands off' should really try and understand how their investments are performing against a benchmark before they meet their IFA/ fund manager.

Who knows they might be performing brilliantly and they're overly worrying about the Woodford loss.

I agree that all investors should monitor their portfolio's long term performance, even if its only from regular reports from their IFA. However the "benchmark" should be the return they require to achieve their objective not some market based index.

bowlhead99

itwasntme001 wrote: »

Depends on the client's objectives, risk tolerance, current financial position, income etc. Advising someone to have some of their wealth in a world index tracker is not a necessarily on its own bad advice.

Linton's comment was in response to the person that said you should compare your returns to a world equity tracker and effectively if you don't beat the tracker you should ask questions.

Nobody is denying that it depends on objectives, risk tolerance blah blah blah and having *some of* their wealth in a global equity tracker is not bad advice.

However, to assume that some mistakes have been made if your balanced portfolio doesn't beat a global equity tracker during a period in which GBP weakens - favouring, with hindsight, overseas investments - seems quite a flawed premise. No doubt the adviser did not recommend the whole portfolio to be invested in an international equities product which can crash 50-60% from peak to trough over a couple of years of market downturn. So, when markets are favourable for that index, one wouldn't expect the more appropriate and balanced portfolio to keep up with the aggressive index product

itwasntme001 wrote: »

I am not qualified as an IFA. I am a simple retail investor. Yet i sold out of woodford over a year ago as i realised things had changed with the fund. Why dd i notice this and made a decision to sell out when your IFA did not? It appears he was asleep all this time.

I would give him the example of people like me selling out of the fund in good time so why did your IFA miss this. Afterall that is what you pay him for. I would then ask for compensation - perhaps at least all the fees he charged you. Then i would just sack the IFA.

I think you're well entitled to ask why the IFA felt that the fund was still appropriate for your portfolio despite its changes in composition, although perhaps the reason for inclusion in the first place wasn't that it was designed to generate high levels of income, and he had a reason for it. You would expect not to be the first person to think of asking him the question, so there is probably a prepared answer.

I wouldn't be particularly fussed about giving him an anecdotal example that some 'simple investor' on a forum claims they noticed the changes under the hood and pre-emptively sold out. Of course plenty of people will make good calls from time to time, whether by luck or judgement. The fact that the simple investor went one way and the IFA went the other, doesn't prove the IFA is especially incompetent. For all we know, the 'simple investor' just dumped the fund because their investment technique was to buy whatever was riding high in performance tables and dump whatever had a bad year or two, and happened to get lucky with their exit from Woodford - while later preferring to paint themselves as a canny investor expertly identifying that 'things had changed'.

Really the more relevant anecdote is that some other IFA firms' advice / due diligence providers had removed WEIF from their recommend list due to factors such as it failing to stay in the equity income sector in which it had initially started (though might not be an issue if income wasn't the original driver of selecting it) and due to perceptions that higher levels of illiquid holdings would not be appropriate if the fund had high redemptions - those redemptions being a risk in times of declining performance as had started to be observed.

Investing and portfolio construction is about opinion but had a change in risk profile been identifed, and should it have been? And how would it be identified in future following lessons learnt. Were any lessons learned and if they were, should your losses contribute to the IFA firms education while you are paying for someone to already know the lessons? Or is there no lesson to learn and it's all 'ah well, can't win them all'...

Sailtheworld

bowlhead99 wrote: »

Linton's comment was in response to the person that said you should compare your returns to a world equity tracker and effectively if you don't beat the tracker you should ask questions.

More a comment that if you're paying for investment advice you should monitor how performance compares against a benchmark.

[Deleted User]

BBC Panorama's take on problematic aspects of the financial services industry tonight:

https://www.bbc.co.uk/programmes/m0009mvp

Should be interesting. Reform overdue for some flawed processes imo

itwasntme001

bowlhead99 wrote: »

Linton's comment was in response to the person that said you should compare your returns to a world equity tracker and effectively if you don't beat the tracker you should ask questions.

Nobody is denying that it depends on objectives, risk tolerance blah blah blah and having *some of* their wealth in a global equity tracker is not bad advice.

However, to assume that some mistakes have been made if your balanced portfolio doesn't beat a global equity tracker during a period in which GBP weakens - favouring, with hindsight, overseas investments - seems quite a flawed premise. No doubt the adviser did not recommend the whole portfolio to be invested in an international equities product which can crash 50-60% from peak to trough over a couple of years of market downturn. So, when markets are favourable for that index, one wouldn't expect the more appropriate and balanced portfolio to keep up with the aggressive index product

But all this is in context of WEIF as an investment. If one had invested in Woodford and compare every quarter its performance against a world equity index, one would have seen in 2017 it started to significantly underperform. Ok fine lets say they compared against an income fund benchmark as that would be the closest in terms of fair comparison. WEIF would still have shown a significant underperformance in 2017.


Then the questions should have been raised. Why was WEIF underperforming? Had the strategy changed? Is it really an income fund still? Why isn't it a pure income fund anymore (when all the other income funds are)? Why was i mislead to believing the fund was and will remain an income fund when there are some companies in the fund that produce no company profits let alone dividends?


Then one would have decided to sell out probably sometime in 2018 before the SHTF!!!

Prism

Sailtheworld wrote: »

More difficult yes, but it's not beyond the wit of even the most hands off investor to try and work how their performance stacks up against the market in general.

How do you measure the performance of people making a living investing your money for you? They'll be thoroughly delighted to hear you you religiously check up on them every economic cycle or two.

Its harder than you make out though I would say. I don't use an IFA, but I do use some managed funds. I can compare against the world index but over a few years it really doesn't tell me much. I won't really know until after possibly 10-15 years if what I have chosen will do what I want it to do, which is help me retire early. I really need to see how it does during a recession but we haven't had one in the period I have been monitoring.

I would say its the same for an IFA approach - its really hard to tell how well its doing over a short time frame, but its also asking a lot to wait for 10+ years to find out. I'm not sure comparing performance vs an index over a 3 or even 5 year period helps much.

If we take Woodford (since this is a thread about him), its not the performance that would worry me initially but the makeup of the funds holdings. Thats what I would want an explanation of from an IFA over the last few years.

Thrugelmir

itwasntme001 wrote: »

If one had invested in Woodford and compare every quarter its performance against a world equity index, one would have seen in 2017 it started to significantly underperform.

Was the World Equity Index the fund's benchmark though?

Secondly a diversified portfolio should have still registered a net overall gain. An all eggs in one basket approach with a Global Fund could equally be disappointing over a given time frame.

itwasntme001

Thrugelmir wrote: »

Was the World Equity Index the fund's benchmark though?

Secondly a diversified portfolio should have still registered a net overall gain. An all eggs in one basket approach with a Global Fund could equally be disappointing over a given time frame.

If you had read on i did say an income fund would be a better benchmark.

AnotherJoe

itwasntme001 wrote: »

But all this is in context of WEIF as an investment. If one had invested in Woodford and compare every quarter its performance against a world equity index, one would have seen in 2017 it started to significantly underperform. Ok fine lets say they compared against an income fund benchmark as that would be the closest in terms of fair comparison. WEIF would still have shown a significant underperformance in 2017.

Then the questions should have been raised. Why was WEIF underperforming? Had the strategy changed? Is it really an income fund still? Why isn't it a pure income fund anymore (when all the other income funds are)? Why was i mislead to believing the fund was and will remain an income fund when there are some companies in the fund that produce no company profits let alone dividends?

Then one would have decided to sell out probably sometime in 2018 before the SHTF!!!

Some great points there.
Perhaps you could also send them to HL